Agriculture in India: Both Weak and Strong
Second largest population in the world, third largest economy, fourth largest agricultural sector… In reference to India, superlatives abound. And yet, 400 million Indians live on less than a dollar a day, 212 million are undernourished and the United Nations Development Programme has ranked India 127th (out of 177) in terms of the human development index.1 How is it that this country, an agricultural giant and a driver of worldwide growth, is not able to ensure food security at home? What strategy can India implement nationally and with regard to international negotiations in particular?
I. An agricultural giant incapable of ensuring the food security of its own population
India is a “giant on shaky ground”; although the agricultural sector is of utmost importance, the country faces structural handicaps that have prevented it from rooting out famine and poverty.
A. Agriculture: An economic sector of utmost importance
Agriculture’s share in India’s economy is significant, albeit in decline. Although the sector accounted for 22 percent of gross domestic product (GDP) in 2005 – next to 51 percent for services and 27 percent for industry – it remains the leading industry for employing close to two thirds of the country’s working population.
Furthermore, India has as much usable farmland as the European Union: 180 million hectares – 140 million of which are planted, covering approximately 60 percent of the country’s total land area.
The Indus and Brahmaputra regions in the north of the country (including the Assam plain, Uttar Pradesh and Punjab), traversed by the Ganges and graced most by the benefits of the monsoons, are the country’s most fertile regions where most agricultural production takes place, sugar cane and wheat production in particular.
These “natural” advantages in part explain India’s leading position with regard to many agricultural products.
B. A sector highly exposed to the vagaries of weather and up against significant structural handicaps
1. Highly exposed to the vagaries of weather
India’s agricultural sector is exposed, along with all of the world’s agricultural sectors, to the vagaries of weather, yet is highly sensitive to these variations given that most agricultural production depends on the monsoon. Precipitation falls from June to September, and its level of intensity determines the production levels for the year, particularly for wheat, which is a staple food in India. “Bad” monsoons, which bring insufficient or excessive levels of precipitation, can cause significant drops in yields,3 thereby submitting production in India to a high degree of variability.
2. Insufficient productivity
India’s agricultural sector is also characterized by insufficient productivity, due to several factors such as the miniaturization of agricultural players, limited use of mechanized farming techniques, a lack of adequate equipment and infrastructure and the harmful consequences of the “Green Revolution” of the 1970s.
a. Highly miniaturized and insufficiently mechanized local production
The average farm in India covers a surface area of 1.5 hectares.4This compares to an average surface area of 50 hectares in France (30 times larger) and an average of 200 hectares in the United States (130 times larger). This characteristic is a legacy of the post-independence farm reforms of 1947, which aimed to redistribute land to poor farmers by placing limitations on the size of real estate. Although the Indian government is currently working to encourage farm expansions, which would create more profitable productions units due to economies of scale, real estate nonetheless continues to be divided into even smaller units with each new generation due to customary and succession laws.5.
This fragmentation of farmland is a factor behind the limited use of mechanized farming techniques and prevents the development of a more organized and productive agricultural sector.
b. Insufficient investment, particularly in infrastructure
Insufficient investment, particularly in infrastructure, is visible and has a direct effect on India’s agricultural productivity. Facilities for the storage and keeping of crops (cold chain) are lacking and lead to tremendous losses, which for produce can represent up to 40 percent of the harvest.
Additionally, only 30 percent of usable farmland is equipped with irrigation systems. A drop in public investment since the 1970s and a lack of upkeep have caused wear and tear of irrigation pipes, leading in turn to the loss of over one-third of water transported. Given the increase in non-farm related water needs due to population growth, conflicts over water usage rights are on the rise.
c. The “boomerang effect” of the Green Revolution
The “Green Revolution” launched by Prime Minister Jawaharlal Nehru in the late 1970s boosted the agricultural sector by increasing yields, but also had the disadvantage of increasing production costs. At a time when agricultural prices were on the decline worldwide, this rise in production costs affected India’s ability to compete and led many small farmers into desperate straits. Faced with this “scissors effect” (drop in prices and rise in costs), India’s farmers took on significant debt to gain new factors of production6 eand access to inputs, which happened to be quite costly given that they were imported. The much-anticipated results never materialized, however, and the trend of rising costs gained momentum. While it cost 30 dollars to produce a ton of wheat in 1985, by 1998 it cost no less than 80! A study published in the British medical research journal The Lancet in 2002 revealed that the agricultural regions of southern India held the sad world record suicide rate, at 58 suicides per 100,000 inhabitants (four times the average in other countries).
In addition, the widespread and indiscriminate use of fertilizer and pesticides has degraded soils. We see today that the fears expressed by Monkombu Swaminathan,7father of India’s “Green Revolution,” in 1968 regarding the consequences of poor irrigation and excessive use of pesticides, were well founded and are now true. A portion of the country’s usable farmland has consequently been seriously degraded, with soil salinization and drops in water table height commonplace in some regions.
The combination of these three factors explains why the average productivity of Indian farms falls well below the averages for the European Union (EU) and China. 8
3. Famine and poverty remain significant handicaps
With 212 million malnourished individuals (as many as in 1992), India is the country most severely affected by malnourishment9 in the world. In addition, one third of the country’s population lives below the extreme poverty line,10 the majority of those individuals representing the agricultural sector.
The “landless farmer” movement has highlighted the distress felt by thousands of Indian farmers who have been forced to abandon land that was requisitioned for the creation of industrial free zones. Close to 40 percent of all Indians are landless and 23 percent live in what a leader of Ekta Parishad, an Indian NGO,11refers to as abject poverty. Although the government recently appeared to have taken note of their grievances (in 2007, opposition to the construction of a pharmaceutical plant and shipyards, redistribution of land), any measures taken were marginal and the structural changes needed to promote equity have yet to be made.
In debt or broke (see above), many farmers have decided to migrate to the cities in hopes of better days. The phenomenon, seen in many developing countries, leads to the creation of “underdevelopment traps” that are affecting India’s pace of development, due to:
> The costs brought about by increased inequalities and poverty, particularly with relation to social policies.
> The urban market’s inability to absorb the working population from agriculture.
> An increase in shantytowns and the creation of megapolises.
> A worsening of problems related to health, hygiene and education.
The situation in India is therefore paradoxical: a giant in global agriculture, the country is incapable of feeding its own population and meeting the challenges and issues that the 21st century holds. Will the strategy that India has adopted for international negotiations, at the WTO in particular, enable it to meet those goals?
II. Agriculture: For India, a strategic sector that requires a new development paradigm
According to most of the International Institutions such as the WTO and the World Bank, a full liberalization of international trade would “automatically” benefit India. The reality is anything but; far from being a source of development, unregulated free trade carries significant risks. A new approach is therefore required.
A. The WTO’s idyllic and theoretical vision: The “one best way” development paradigm
According to the WTO, India would have everything to gain from a full liberalization of the international markets for agriculture, industry and services alike. The liberalization of international agricultural trade would allow India to develop and meet the great challenges it faces:
> Import, at lower cost, an increased variety of products that would help the country react to Westernized modes of consumption. Indians have started to modify their dietary habits, and for the time being, imported products alone are able to satisfy their expectations and new needs, given that national food production is insufficient both in quantity and in diversity.
>Boost its exportation of agricultural goods and thereby reduce the country’s trade balance deficit. Its balance of trade is largely negative, particularly within the agricultural sector. While imports grew by 64 percent from 1998 to 2001, exports fell by 7 percent over the same period. This is mainly because the Indian government neglected the export market for quite some time, concentrating instead on supplying the national market. The country’s exports served at the time as a way to sell off surplus food.
> Stimulate its economic growth by increasing its share in the international trade of agricultural and agrifood products (currently at 1.2 percent) and benefitting as much as possible from the growing potential of Indian demand, stimulated by population growth and improved purchasing power.
> Promote national development and the fight to end famine and poverty by granting the country’s population access to less expensive products via the elimination of customs duties.
The WTO also purports that free trade in services would be essential for economic growth and development in India, for it holds certain competitive advantages, particularly in the profitable economic sectors of new technologies and computing.
Additionally, the accumulated benefits of free trade in services could, via a “snowball” effect, benefit India’s other economic sectors, the agricultural sector in particular.
CPascal Lamy, Director-General of the WTO, said as much in a speech given at the London School of Economics in October 2007: “Services underpin virtually every economic activity needed in the production and distribution of other goods and services (…) we need services to help realize the economy-wide gains from trade and to amplify whatever market access might be achieved in agriculture and industrial products.”
And yet, the breakdown of the most recent G412 talks that took place in Potsdam in June 2007 demonstrates that the WTO’s approach is idyllic and strictly theoretical. For if there are only advantages to free trade, why would India have walked away from the negotiating table?
Why would it have taken the risk of compromising the negotiation process as a whole, when a significant share of its growth (services and industry) hinges on it, and this to preserve an economic sector that, once liberalized, will only marginally contribute to its economic growth in comparison to the other two sectors?
A much more complex reality that calls for the creation of a new development paradigm
Reality has run counter to the WTO’s grand predictions and shown just how true the “agricultural exception” is. The automatic succession of beneficial effects touted by the Director of the WTO in fact hides much more complex realities, not the least of which are food security, the social equilibrium of a population hit hard by malnutrition, insufficient yields and uncertainty over climate factors. Consequently, three factors undermine the WTO’s international free trade strategy for India and prove the need for a new international development paradigm.
> When India sneezes, the world’s agricultural markets catch cold…
Demand from India is a significant driver of worldwide growth, an influence that continues to grow. In the context of a global supply deficit, low inventories and a growing liberalization of markets, India is increasingly exposed to the fluctuations of the international markets … yet the opposite is also true: India’s positions on the international markets significantly destabilize world prices, as evidenced by the recent bid solicitations for wheat.
These are set to grow in number, given that food security is a strategic, national defense issue for India, which must, above all, ensure that its 1.1 billion inhabitants are fed. Aware of this, the Indian government is adjusting customs duties to ensure sufficient domestic supply.13.The government is also monitoring imports of agricultural goods deemed sensitive in nature (for competing directly with nationally-produced goods), such as dairy, fruit, nuts, coffee, tea, grains, food oils and spices. The government may also decide to limit exports in order to preserve national supply and the stability of domestic prices (this happened in 2006 for legume exports). Wheat exports were also prohibited, in February 2007, to contain a rise in domestic prices.
> The liberalization of international agricultural trade, combined with the establishment of intellectual property barriers, is detrimental to India’s agricultural sector, today unable to meet the challenges they present.
With the liberalization of international agricultural trade, products imported at lower cost will enter into direct competition with locally-produced goods. At the same time, India’s exports will suffer due to exports from other emerging countries that are better able to compete given their more modern agricultural techniques.
Finally, the TRIPS and TRIPS-plus agreements, which establish significant intellectual property barriers, will cause direct harm to India’s agricultural sector, as the benefits of innovation will be reaped by foreign companies rather than Indian companies or farmers, due to the intellectual property game. The phenomenon can already be observed today with rice.
> Cities will not absorb the agricultural workforce
According to Subir Gokarn, an economist with the rating agency Crisil, an Indian subsidiary of Standard & Poor’s, “a traditional development model would call for a transition from agriculture to industry, and later to services. But in India, we are moving directly from agriculture to the service sector, a sector that creates only skilled jobs. Industry, for its part, is not growing fast enough to absorb the droves of farmers."
This non-absorption of agricultural workers by the other economic sectors, concentrated in the cities, has led to the formation of megapolises, a phenomenon seen and well known in many LDCs, along with the formation of “underdevelopment traps.” This is affecting India’s development potential in a variety of ways, the most significant of which is related to the transfer of resources; rising inequalities and poverty give rise to a certain number of direct costs (related to social welfare as well as crime-fighting expenditures) and indirect costs (growth of the informal economy and rising crime). These costs and expenditures are sapping resources that would be better used elsewhere, for example as investments in the private sector and infrastructure.
This phenomenon has, furthermore, been exacerbated by Indian society’s segmentation into castes, which hinders absorption of the agricultural workforce.
Moving away from the WTO’s idyllic and theoretical approach, according to which there is “one best way” toward economic growth and development, is vital, and the future of India depends on it. A new paradigm must be developed, one that would take into account regional specificities while ensuring that they mesh with international rules, centered on two strong notions – regulation of the agricultural markets and international cooperation.
For this to happen, three criteria must converge:
> Adoption of a comprehensive and true-to-life vision of the realities of the agricultural sector.
What is the current status of the world’s agricultural markets?
> Definition of principles of governance for the world’s agricultural markets that is capable of meeting current and future challenges.
What vision do we have for agriculture at the international level?
> Development of instruments for guidance and market regulation, to ensure that the set objectives are attained.
How do we ensure that we not stray from the “development path” defined in the first two criteria?
A satisfactory answer has yet to be provided for any of these three strategic questions. WOAgri has been working to that end since December 2005, defining principles of governance within an integrated framework, developing the NAR Rating Agency and building the WOAGRI economic model, the first simulations of which are set to take place within the upcoming days.
This is why the current “break” in the WTO Doha Round negotiations must not be perceived as a danger for India and the other developing countries. Rather, it provides a unique opportunity to reconsider the terms of the debate and provides a convincing argument for agriculture to be accorded “special” consideration within international negotiations.
This new approach with regard to a global governance of agriculture should not, however, lead India to forget the need to reform its agricultural sector. Several possible avenues have been broached:
> A new Green Revolution, to allow India to diversify its agricultural sector while increasing its respect for ecosystems.
> Increased investment in infrastructure, to modernize its agricultural system and avoid production losses, and in research to lessen India’s reliance on foreign research laboratories (in the area of high-yield plant research, in particular) and to enable India’s farmers to withstand international competition.
> Continued pursuit of the ambitious draft14 “National Rural Employment Guarantee Scheme” (NREGS) policy to ensure a minimum wage for all heads of agricultural families throughout the year.
|1 The human development index (HDI) is a statistical tool that measures a country’s health/life expectancy, knowledge/education and standard of living levels. |
2 Millet is an annual, herbaceous plant from the grass family, cultivated as a food crop. It is a coarse grain, cultivated for its seeds and well-adapted to semi-arid zones.
3 The 2007 monsoon was the most brutal of the last thirty years; devastating floods caused over 1,400 deaths and victimized 25 million people in India, Bangladesh and Nepal.
4 Figures from the L'ouverture du marché indien report (see above)
5 India’s milk production sector provides another telling illustration of this miniaturization of production: in addition to the sector’s high geographical concentration (90 percent is produced in the northern and northwestern states), over half of all production is carried out by small farmers who have only one or two cows. Although India is the world’s leading milk producer, it has one of the lowest productivity levels. This can mainly be attributed to a lack of pastureland and many animal-related weaknesses related to factors such as diet and breed genetics.
6 They have been using high-yield plants for the past few years.
7 Indian geneticist who served as Executive Director of the International Rice Research Institute (IRRI) in the Philippines until 1987. Former President of the World Conservation Union and recipient of the 1987 World Food Prize.
8 Annual yields for wheat and rice are, respectively, 2.7 tons per hectare (half of the EU’s yield) and 1.9 tons per hectare (half China’s yield). These figures were published by the Embassy of France in India (Economic Mission) in a report entitled, L'ouverture du marché indien.
9 Malnutrition, or undernutrition, is characterized by an insufficient food intake for meeting an individual’s daily energy needs.
10 Population living on less than a dollar a day.
11 Source: Les paysans sans terre envahissent New Delhi, Le Figaro, with AFP and BBC (October 28, 2007).
12 At the most recent meeting of the G4 (India, Brazil, European Union and the United States), Kamal Nath, India’s Minister of Trade, walked away from the negotiating table along with his Brazilian counterpart.
13 The average rate observed for customs duties on imports is 40.8 percent, a figure well above the 14.1 percent rate for non-agricultural goods.
14 Initially, the scheme was estimated at an annual cost of 400 billion rupees (USD 9 billion). The figure listed in the national budget presented on February 28, 2006 was just 117 billion rupees.